PETRO PRICE HIKE

By SANJAYA DHAKAL

Like every other time, the past one week also witnessed a volley of debates, discussions, demonstrations and expert-speaks on the issue of price hike of petroleum products.

No sooner had the government decided to hike the prices of petroleum products, some political parties – notably the Maoists – and their student organizations have started demonstrating demanding the rollback.

It does not need an expert economist to see the utter necessity of hiking the fuel price – notwithstanding the terrible problems common people are certain to face due to its hike.

Since past few years, the price of crude oil in the international market has been spiraling out of control. From around $ 30 a barrel in 2003, the price has continued to soar to reach $93 a barrel this week (One barrel is equal to 159 liters). And Nepal being a country that has to import all of the petroleum products, it is unnatural and against normal economic sense to continue to subsidize the fuel at the cost of cutting down much-needed investment on areas such as health and education.

Moreover, it has been substantiated by various studies that less than 10 percent of the populations are actually dependent on the POL products for their energy consumption. All the rest are dependent on traditional sources such as fuel-wood, bio-mass etc.

In fact, the NOC’s decision to hike fuel price had become long overdue given its mounting losses. As it failed to pay its dues to sole supplier Indian Oil Corporation (IOC), the latter even cut down supplies leading to an acute shortage of the fuel in the country. Since last one year, an average urban consumer has been subjected to serpentine queues and snap shortages at petrol stations and cooking gas depots.

Given the unbridled rise of the price of crude oil, the NOC’s price hike last week could be too little for it.

The political parties and student organizations who protest the fuel price hike always point at the need to control the corruption, leakage and irregularities within the NOC. They also demand that tax be cut down on fuel import. “However, given the magnitude of price hike in the international market, even if you have a corruption-free and zero-leakage situation, you will need to hike the price because they only affect a very small part of the price component,” said an economist.

The economist also exposed the utter irrationality of doing away with the tax on fuel. “The tax on fuel is a major source of income for the government. If it is done away with, that will affect government’s spending on areas like education, health and development,” he said.

Price Hike

The government announced the hike in fuel price last Wednesday (October 24). As per its decision, the price of petrol has been increased by Rs 6.5 to reach Rs 73.5 per liter. Likewise, the price of diesel has increased from Rs 53.15 to Rs 56.25 per liter. The price of kerosene has increased from Rs 47.65 to Rs 51.2 per liter while the price of cooking gas has increased from Rs 900 to Rs 1100 per cylinder.

According to Nepal Oil Corporation (NOC), it will still be making losses to the tune of Rs 70 million per month. Earlier it claimed it was losing Rs 400 million a month due to lack of price hike in the domestic market despite spiraling prices in the international market.

The NOC executive director Digambar Jha has claimed that consumers will now enjoy easy availability of fuel.

The decision to hike the fuel price was long overdue. The government had said it would not increase fuel price before elections fearing rioting by some elements. But since the election has been suspended it had little option than to hike the fuel price.

Due to lack of price revision, the NOC was becoming unable to pay its dues to supplier Indian Oil Corporation (IOC), which in turn, had cut down supply volume. The NOC says it still needs to pay dues over Rs 4 billion to IOC and over Rs 6 billion to domestic banks and financial institutions.

Immediately after the decision by the government to hike the fuel price, the Maoists, student groups associated with communist parties and transport entrepreneurs protested the government decision.

The protesting student organizations affiliated with seven parties demanded transparency in the Nepal Oil Corporation and slashing of commission given to the truck entrepreneurs for transportation. Spokesperson of the Maoists Krishna Bahadur Mahara issued a statement condemning the government’s decision to hike the fuel price. Mahara has said that the government should have controlled corruption and leakage within the NOC instead of burdening the common people with price hike.

NOC Says No To Roll Back

Saying that it is bleeding due to soaring losses, the NOC has said that it cannot roll back the decision to hike the price of fuel. According to NOC executive director Digambar Jha, any revision would lead to short supply.

Jha said that there was no alternative to the price hike as the government did not compensate for the loss the corporation incurred by distributing fuel at a subsidized rate. Jha added that the price of the petroleum products was still cheap as compared to the international markets.

Who Uses POL Products?

Parties who raise pro-poor slogans when protesting fuel price hike have ignored the basic fact about who uses the petroleum products in Nepal. Even now, overwhelming mass of Nepalese population depends on traditional sources for energy.

According to various Economic Surveys by the government, less than 10 percent of the population depend on petroleum products for energy. Fuel wood comprises the single biggest source of energy at around 7000 thousand tons of oil equivalent (TOE) – out of the total of over 8500 TOE of energy consumption .

The traditional sources include fuel wood, animal dung and agriculture wastes. Commercial sources include POL products, coal (2%) and electricity (1.6%). As such, it is obvious that POL products are used by a limited number of people residing in urban centers.

“The bottom 40 percent of Nepalese households use kerosene primarily for lighting (which consumes little kerosene) and not for cooking. Furthermore, the percentage of households who rely on kerosene for lighting is falling with time. The percentage fell from 80 percent in 1995/96 to 58 percent in 2003/04, and even in rural areas this percentage declined from 84 to 67 percent between the two periods on account of increasing electrification. The estimated direct impact of raising the price of kerosene to the cost-recovery level—an incremental cost of approximately Rs 20 per month per household for the poor—seems too modest to justify a price subsidy scheme with evidence of leakage and a significant cost to the country,” states a report titled “Socio Economic Impact of Fuel Price Increases in Nepal” prepared by the World Bank in October, 2004.

However, despite the voluminous justifications for doing away with subsidies on POL products, the political parties continue to attempt to mix oil with politics. This explosive mixture is neither sustainable nor prudent if looked at from long-term perspective instead of short-term political angle.